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Fact Check: The Truth Behind 5 ESG Myths

In 2021, investors will continue to embrace environmental, social and governance (ESG) investments at record levels.

In the first quarter of 2021, global inflows of ESG funds exceeded the last four consecutive quarters, reaching 2,000 billion dollars. But while ESG is rapidly gaining ground, the CFA Institute shows that 33% of professional investors surveyed believe they have insufficient knowledge to take ESG issues into account.

To help investors understand this growing trend, this infographic from MSCI helps provide a fact check on five common ESG myths.

1. “ESG is done to the detriment of investment performance”

Checking the facts: Not necessarily

Globally, ESG-focused companies have not only experienced higher returns, but also stronger earnings and dividend growth.

Returns by ESG rating Profit growth * Active return ** Dividends and redemptions
High level 2.89% 1.31% 0.28%
Intermediate level 1.35% 0.12% -0.02%
Lower level -9.22% -1.25% -0.05%

Source: MSCI ESG Research LLC (December 2020)
* Contribution of earnings growth and dividends / buybacks to active return
** The active return is the additional gain or loss compared to its respective benchmark

In fact, a separate study of the CFA Institute show that 35% of investment professionals invest in ESG to improve their financial performance.

2. “Investors talk about ESG but don’t invest in it”

Checking the facts: False

Global ESG assets under management (AUM) in ETFs have grown from $ 6 billion in 2015 to $ 150 billion in 2020. In just five years, ESG AUMs have accelerated 25 times.

Today, fund managers focus on the following five main issues:

Main ESG issues Affected property Growth in affected assets (2018-2020)
Climate change / carbon emissions $ 4.18T 39%
Anti Corruption $ 2.44T ten%
Board issues $ 2.39T 66%
Sustainable natural resources / agriculture $ 2.38T 81%
Executive remuneration $ 2.22T 122%

Source: US SIF Foundation (November 2020)

Meanwhile, more 1,500 shareholder resolutions on ESG topics were filed between 2018-2020. Not only are investors turning to ESG assets, they are placing higher demands on corporate responsibility.

3. “ESG investment strategies wipe out entire sectors”

Checking the facts: Not necessarily

First, not all ESG investment approaches are exclusive.

For example, in North America approximately 51% of ESG ETFs were using an ESG integration approach as of December 31, 2020. In an ESG integration approach, ESG risks and opportunities are analyzed with the aim of supporting long-term returns.

In comparison, stock and filter approaches, which accounted for over 22% of ESG ETFs in North America, may exclude specific business activities, such as alcohol or tobacco, or sectors such as petroleum and petroleum. gas.

Percentage of ESG type The integration Values ​​and screens Thematic Impact
North America 50.9% 22.5% 20.7% 5.9%
Asia 57.8% 34.6% 3.8% 3.8%
Europe 30.8% 60.6% 8.6% 0.0%
Australia 28.6% 71.4% 0.0% 0.0%

Source: Refinitiv / Lipper and MSCI ESG Research LLC as of December 31, 2020 (MSCI February 2021)

Second, companies are rated on a sector basis where ESG leaders and laggards are identified within each sector relative to their peers. In other words, ESG does not mean eliminating exposure to entire sectors. Instead, investors can choose from a range of companies based on the quality of their ESG ratings.

4. “ESG investments are for millennials”

Checking the facts: False

Although ESG is popular among millennials, ESG investing is driven by the entire investor population. In 2019, a study reveals that 85% of the general population expressed interest in ESG investing.

Interest in sustainable investing General population Millennials
2019 85% 95%
2015 71% 84%

Source: US SIF Foundation (November 2020)

Sustainable investing goes well beyond millennials: ESG information is quickly becoming requirements for key industry players, such as institutional investors and listed companies.

5. “ESG investing is here to stay”

Checking the facts: True

Escalation 28% In 2020 alone, more than 3,000 signatories pledged to abide by the United Nations Principles of Responsible Investment. In the first quarter of 2021, 313 global organizations and 33 asset owners were newly added.

Growth of UN PRI Number of Signatories * AUM represented
2020 3,038 $ 103.4T
2019 2,370 $ 86.3T

Source: UN PRI
* In March 2020

The availability of ESG investments is at the heart of ESG growth. ESG investing has become more accessible, which has not always been the case. Over the past decade, the global number of ESG ETFs has grown from 46 To four hundred ninety seven.

Why facts matter

As ESG investments continue to play an even bigger role in investor portfolios, it is important to focus on the data rather than the dominant ESG myths that are not supported by the facts.

Given the recent surge in investment returns and adoption of ESG criteria, data-driven evidence enables investors to create more sustainable portfolios that better match their investment objectives.

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